Will Post-Election Market Jeer Turn Into Holiday Cheer?
As of Tuesday's close, the S&P 500 and NASDAQ composite have recovered more than 3 percent and 3.5 percent, respectively, from the post-election low set on Friday last week. However, even with significant gains made on 'fiscal cliff' optimism, all three indexes are still negative close to 3 percent since the election.
How then, have the indexes fared historically from Thanksgiving to end of the year, when they have lost ground from election to the Thanksgiving holiday?
Since 1942, when the holiday was fixed on the fourth Thursday in November, the markets have skid in eight different instances (this is the 9th) after presidential races. The silver lining? Despite their lackluster performance post-election, history has shown that the indexes do not remain at the low for long.
In fact, according to Morningstar Commodity Data, of the eight previous instances during which indexes turned negative after the election, the Dow bounced back every time — averaging 3.35 percent return. Similarly, the S&P 500 and NASDAQ turned around every time but once, averaging 2.68 and 1.18 percent respectively.
The table below highlights average returns from Thanksgiving to end of the year, for each year the three major indexes posted losses from election day to Thanksgiving.
Whether the stocks will rally post-Thanksgiving this election year, will not only depend on the historical seasonal bias as mentioned above, but also on how the 'fiscal cliff' issues unfold next month.